Privatization Triggers Race to the Bottom

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Jun 5, 2014

Taxpayers are inadvertently funding the erosion of the middle class and their local community services, as more state and local governments privatize important public functions, according to a new report from In the Public Interest.

Taxpayers are inadvertently funding the erosion of the middle class and their local community services, as more state and local governments privatize important public functions, according to a new report from In the Public Interest.

The study, "Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class," found that outsourcing public services to for-profit and other private companies often resulted in lower wages and reduced benefits that ultimately hurt the local economy. It analyzed case studies from around the country:

In New Jersey, after public schools outsourced food service jobs, companies like Aramark, Sodexo and Compass cut workers' wages by $4 to $6 an hour and wiped out many of their health insurance benefits. Food service companies have among the highest levels of employees and their children enrolled in the New Jersey FamilyCare program, the state's Medicaid program – driving up poverty and likely costing taxpayers far more than any savings realized from privatization.

In Michigan, a state-run veterans home outsourced nursing assistant positions, which resulted in wages dropping from a range of $15 to $20 an hour with health benefits to $8.50 an hour without benefits. Studies show the cuts resulted in higher turnover among the outsourced nursing assistants and, ultimately, lower levels of reliability and quality of care for veterans.

In Milwaukee, the county outsourced nearly 90 custodial jobs to MidAmerican Building Services, a for-profit company that slashed compensation to levels so low that many county workers with families could no longer afford to work there. One custodian skipped doctor visits to save money and had to dip into her son's college fund to pay for daily necessities. Another custodian was forced to cut back on treatments needed by his disabled son due to the loss of income.

"It is important research that connects how privatization has far-reaching, negative effects in the community well beyond the contract itself," said Brooks Sunkett, vice president of CWA's Public, Health Care, and Education Workers Sector.

The report also includes several policy recommendations for reversing this dangerous trend, including requiring contractors to pay a living wage and mandating that governments conduct a social and economic impact analysis before outsourcing.

CWA helped support the research and shape the contents of the report. Read it here.